Schumpeterian Rents Research Articles

Innovate or Imitate? Behavioural technological change

We propose a behavioural model of technological change with evolutionary switching between costly innovators and free imitators, and study the endogenous interplay of innovation decisions, market price dynamics and technological progress. Innovation and imitation are strategic substitutes and exhibit negative feedback. Endogenous technological change is the cumulative outcome of innovation decisions. There are three scenarios: market breakdown, Schumpeterian rents and learning curves. The latter is characterised by an increasing fraction of innovators when demand is elastic, while inelastic demand allows technological progress with shrinking innovation effort. Model simulations are compared to stylised features of empirical data in two industrial sectors.

Innovate or Imitate? Behavioural Technological Change

We propose a behavioural model of technological change with evolutionary switching between boundedly rational costly innovators and free imitators, and study the endogenous interplay of innovation decisions, market price dynamics and technological progress. Innovation and imitation are strategic substitutes and exhibit negative feedback. Endogenous technological change is the cumulative outcome of innovation decisions. There are three scenarios: market breakdown, Schumpeterian rents and learning curves. The latter is characterized by an increasing fraction of innovators when demand is elastic, while inelastic demand allows technological progress with shrinking innovation effort. Model simulations are compared to empirical data of two industrial sectors.

Strategic Implications for (Non-Equity) Alliance Performance

Based on data from two separate cross-industry samples, we offer empirical support for a theoretic framework that explains an important set of antecedents to alliance performance. Our findings suggest that capability complementarity and investment in the alliance — via their influence on the development of competitive capabilities — as well as implementation effort, are important elements that ultimately affect the success of the partnership. Furthermore, our findings confirm that it is not only the generation of quasi-rents but the generation of Schumpeterian rents that have an impact on performance in non-equity alliances. This is seen in the relationship between alliance performance and the capacity of the alliance to change and innovate in a strategically flexible manner.

Second‐order competences and Schumpeterian rents

AbstractSecond‐order competences, a type of dynamic capability, enable firms to engage in a process of Schumpeterian competition. This study examines the effects of marketing and R&D second‐order competences (the abilities to create new market‐related and technological resources) on firm profitability. Based on multiple informant surveys and archival data from U.S. public manufacturing firms, competitive turbulence is found to present contrasting contingencies for the effects of these competences on return on assets (ROA). The effect of marketing competence on ROA was positive under stable and moderate competitive conditions, whereas the effect of R&D competence on ROA was positive under volatile competitive conditions. Copyright © 2012 Strategic Management Society.

PERSPECTIVE—Explaining Influence Rents: The Case for an Institutions-Based View of Strategy

Research in strategy has identified and tried to explain four types of rents: monopolistic rents, efficiency rents, quasi rents, and Schumpeterian rents. Building on previous work on political and institutional strategies, we add a fifth type of rent: influence rents. Influence rents are the extra profits earned by a firm because the rules of the game (laws, regulations, and informal rules) are designed or changed to suit it. To aid the analysis of the relationship between institutional context and firm performance and to provide a structure to guide research, we develop a framework with five key components: (a) an identification of the five fundamental problems of a market economy, (b) a typology that describes the five different types of institutions that emerge to solve these problems, (c) the market-ordering mechanisms used by institutions to solve these problems, (d) the common causes of weak institutional performance, and (e) generic strategies used by firms to exploit these weaknesses of an institutional context to enhance firm performance. We highlight potential applications of the framework as well as an illustrative research agenda that can advance the development of theory to explain the emergence and persistence of influence rents.

Explaining Influence Rents: The Case for an Institutions-Based View of Strategy

Research in strategy has identified and tried to explain four types of rents: monopolistic rents, efficiency rents, quasi rents, and Schumpeterian rents. Building on previous work on political and institutional strategies, we add a fifth type of rent: influence rents. Influence rents are the extra profits earned by a firm because the rules of the game (laws, regulations, and informal rules) are designed or changed to suit it. To aid the analysis of the relationship between institutional context and firm performance and to provide a structure to guide research, we develop a framework with five key components: (a) an identification of the five fundamental problems of a market economy, (b) a typology that describes the five different types of institutions that emerge to solve these problems, (c) the market-ordering mechanisms used by institutions to solve these problems, (d) the common causes of weak institutional performance, and (e) generic strategies used by firms to exploit these weaknesses of an institutional context to enhance firm performance. We highlight potential applications of the framework as well as an illustrative research agenda that can advance the development of theory to explain the emergence and persistence of influence rents.

BLUE OCEAN OR FAST-SECOND INNOVATION? A FOUR-BREAKTHROUGH MODEL TO EXPLAIN SUCCESSFUL MARKET DOMINATION

Innovation is widely recognized as a major driver of long-term corporate growth. Successful innovators who manage to dominate new markets enjoy Schumpeterian rents for their inventions. How then can a firm dominate a new market? Two streams of literature have proposed opposite answers to this question. The First Mover approach indicates that by setting up a strong differentiation strategy, companies are supposed to create a new area where profits abound. This approach is supported especially by Kim and Mauborgne (2004) who coined the term Blue Ocean to describe it. The Fast Second approach, defended by Markides and Geroski (2005), contends, on the contrary, that companies should not try to become pioneers, but should target the newly created market in second position, and colonize it. But neither Blue Ocean nor Fast Second are able to convincingly explain successful market domination. Our study of 24 innovation cases suggests that innovation which leads to market domination is instead achieved by using four kinds of breakthroughs, separately of simultaneously.

Rent Creation Beyond Organizational Boundaries: The Role of Governance and Leadership for Capability Development at the Inter-Organizational Level

This paper develops an integrated theory and provides an illustrative example to explain the effects of governance and leadership on the development of dynamic and operational capabilities in alliances and their resultant strategic performance. We use a dynamic capability perspective to explain alliance performance and embed our argument in stewardship theory and full-range leadership theory. According to our theoretical framework, co-existing stewardship governance and transformational leadership behaviors facilitate the creation of Schumpeterian rents through dynamic capabilities, while co-existing principal-agent governance and transactional leadership behaviors affect the creation of Ricardian rents through operational capabilities in alliances. Our integrated theory implies that it is critical for alliance partners to align their governance arrangements with the leadership practiced in the alliance team in order to realize improved alliance performance.

Entrepreneurship in the Theory of the Firm

This paper develops micro-economic foundations for a theory of entrepreneurship and growth, focusing on innovation and opportunity as intermediate linkages between the two. Expanding upon points of tangency between Schumpeter and Coase, the paper argues that transactions costs are the glue that holds together entrepreneurial “new combinations.” Technological/organizational complexity of production is defined as the extent to which a technical decision by one unit within the firm affects the productive efficiency of other units. Where decreasing transactions costs tend to pull incumbent organizations apart, the possession of difficult to imitate production practices by the same organizations keeps them together. The dissolution of incumbent firms creates opportunities for entrepreneurs; the prospect of Schumpeterian rents provides the incentive to realize those opportunities.

Yesterday's Friends, Tomorrow's Foes? Offshoring, Rents and Institutional Settings

Despite sustained public debate about the current wave of offshoring, there has been limited international business research on its strategic implications. We examine the generation, appropriation and sustainability of economic rents that flow from competitive advantage in the face of offshoring. Digitization and I.T. have allowed the scope of offshoring to expand to cover finance and accounting, business analysis, R&D, HR and customer service. At the same time, across borders, institutional differences associated with intellectual property rights regimes, market regulation, lobbying and corruption create additional distortions that can threaten rents. Our analysis of rent generation suggests that innovation (Schumpeterian) rents and asset utilization (Ricardian) rents are threatened by offshoring, while rents based on market power (monopoly rents) are only weakly impacted. This places Schumpeterian rents at risk in a manner they never have been before.